Archive for month: November, 2016

Implementing revised HMDA rules is a monumental task by any measure. The first phase is to determine scope and coverage, collect the data, and submit it to the CFPB. The second phase involves analyzing the data and determining the story told by that data.

The scope of institutions covered by the revised rules has changed. The types of loans that are HMDA-reportable under the revised rules has changed. The list of information that must be collected for each reported loan has changed. The rules for submitting the data in a timely fashion to the CFPB has changed a small amount. These changes during Phase I will keep all HMDA reporting institutions very busy from now until the 2018 Data is submitted in early 2019.

Phase II, determining the story told by your HMDA data, begins in early 2018. As your institution begins to collect the revised data it should analyze that data to detect any adverse trends.

Once published the revised HMDA disclosure format will reveal new areas of concern, such as:

With the collection of the applicant’s age, we expect tables that explore the issue of age discrimination.

With the addition of TRID-related data, we expect expanded data pricing discrimination based on an expanded base of data, such as discount points. Will the TRID data also be used to identify TILA violations?

With the addition of race and ethnicity subcategories, we expect the disclosure will consider discrimination within categories such as a Japanese-owned bank discriminating against a Chinese applicant.

The CFPB has not revealed the format of the revised HMDA disclosure form or provided a date by which the disclosure format will become available. Once published, every HMDA-reporting institution will need to shift part of their attention to Phase II.

It would be incompetent to initiate all of these changes without determining in advance how all of the new information would be used. We would prefer to believe that the CFPB is not incompetent, so we encourage them to release the format information that was developed several years ago. The industry needs that information sooner rather than later.

Following this week’s election we all need to evaluate the impact on our lives, families, and our businesses. Change is definitely coming, but will not happen overnight. If you have a positive view of the future I hope your vision comes true. If you are fearful of the future I hope your fears are unfounded. We need to closely watch the actions of Congress and the White House over the next few years to judge the true direction of the nation.

Changes in the Parties

Both major parties need to perform some serious self-evaluation following the election.

The Democrats lost the White House, Congress and control in a number of states. The Party is losing many of their traditional constituencies. Without change the Party will continue to lose relevancy.

The Republicans also have challenges. Many of the Party’s traditional leaders did not support, some even openly opposed, President Trump. The Party needs to find unity quickly in order to build on the mandate provided by the election.

Impact on the banking industry

Based on results from the past two days the stock market seems to believe the changes are positive for the banking industry. The impact on the compliance segment of the industry is not so clear.

The campaign promise to repeal the Dodd-Frank Act is not likely (It gets messy when you try to put toothpaste back in the tube). Major changes to various aspects of the law are expected. We suspect that Director Cordray will have to answer to a board of directors in the future. We expect that a Republican controlled Congress will slow the pace of new laws entering the compliance pipeline. While the fate of laws and regulations that are in the pipeline now is not certain, we expect the implementation of those laws and regulations to continue over the next few years. We will monitor each of the Federal Regulatory agencies to gauge any changes in the level of enforcement.

In my forty year career I have seen the compliance pendulum shift numerous times from a level of high intensity to levels of lower intensity. The pendulum keeps moving, but compliance doesn’t go away.

Collection of 2017 HMDA data begins in less than two months. The Consumer Financial Protection Bureau announced last summer in its 2017 Filing Instructions Guide (FIG) that beginning with the HMDA data collected in 2017, filers will submit their HMDA data to the Consumer Financial Protection Bureau (CFPB) using a web interface referred to as the HMDA Platform. The HMDA Platform has not been released. That puts the industry in the awkward position of collecting 2017 HMDA data in January without knowledge of how that data will be submitted at year end.

Vendor-Supplied and Internal Solutions

HMDA filers, whether using a vendor-supplied solution or an internally developed solution, will interact directly with the HMDA Platform to file their HMDA data. The CFPB encourages HMDA filers that use vendor software or internally developed solutions to prepare their HMDA data for submission to contact their vendors or internal support staff to confirm that their software will format HMDA data collected in 2017 according to the requirements specified in Section 3 of the FIG. These include the creation of a pipe delimited text file to be uploaded to the HMDA Platform. Unfortuneately vendors and support staff cannot provide complete assurances about their future plans until the CFPB finally releases the HMDA Platform for testing.

FFIEC Solution

HMDA filers will interact directly with the HMDA Platform to file their HMDA data. The CFPB has announced that the free Data Entry Software (DES) currently provided by the FFIEC will no longer be available as a method of data entry or data submission.

Those financial institutions that currently use the DES for submission, will need a software solution to create an electronic file that can be submitted to the new HMDA Platform. The CFPB suggests several possible solutions to create the electronic file. For example:

Software commonly available on desktop computers such as Microsoft Access or Excel may also be used for data entry and formatting. (See Spreadsheet/Database Options below.)

In addition, the CFPB will publish a Microsoft Excel HMDA loan/application register (LAR) data entry formatting tool. This tool will help filers enter and format their HMDA data into a pipe delimited text file needed to submit the data to the CFPB’s HMDA Platform. According to the CFPB this tool will be available for filers in early January 2017.

All of these suggestions may work, but until the HMDA platform is available for testing, it is not possible to confirm that any of these solutions will work.

Spreadsheet/Database Options

With some minor adjustments it appears that some spreadsheet and database products such as Microsoft Access or Excel may also be used for data entry and formatting. The current FFIEC DES allows data to be exported in a comma separated value (CSV), which is not compatible with the HMDA Platform. Once loaded into Access or Excel the data can be exported in a pipe delimited format, which is compatible with the HMDA Platform.

In Windows 7, the following steps change the delimiter setting:

Make sure Access or Excel is closed.

Navigate to the control panel.

Select ‘Region and Language’

Click the ‘Additional Settings’ button.

Find the List separator and change it from a comma to your preferred delimiter such as a pipe (|).

Click OK.

Click OK.

Similar steps should work in other versions of Windows.

Conclusion

When regulators, including the CFPB, encounter problem situations in a financial institution they are reluctant to drop the issue based on promises of future corrective action. So surely they will understand the reluctance of the banking industry to accept their promises that everything will be fine once the HMDA Platform is available in early January. We will believe it when we see it.

The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), the Farm Credit Administration (FCA), and the National Credit Union Administration (NCUA) have issued a new proposal to amend their regulations regarding loans in areas having special flood hazards to implement the private flood insurance provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act). The proposed rule requires regulated lending institutions to accept policies that meet the statutory definition of private flood insurance in the Biggert-Waters Act and permit regulated lending institutions to accept flood insurance provided by private insurers that does not meet the statutory definition of “private flood insurance” on a discretionary basis, subject to certain restrictions.

Under the proposal lenders must conduct a verification to determine that the policy meets the definition of “private flood insurance.” The proposal includes an optional safe harbor that minimizes the compliance burden, but does not assure adequate collateral protection. The Agencies are proposing to permit a regulated lending institution to exercise its discretion to accept certain types of flood insurance policies issued by a private insurer other than private flood insurance policies that an institution is required to accept.

The proposal also would establish criteria to assist in determining that coverage offered by a mutual aid society assures compliance with federal flood insurance laws.

Comments will be received for 60 days after publication in the Federal Register. Publication is expected soon.